Friday, February 10, 2012
Stock Market Commentary:
Stocks and a slew of other risk assets ended the week mixed to slightly lower after Greece finally accepted the tough austerity terms of its second bailout package from the EU and the IMF. From our point of view, the major averages confirmed their latest rally attempt on Tuesday 1.3.12 which was Day 9 of their current rally attempt. It was also encouraging to see the S&P 500 break above its downward trendline and its longer term 200 DMA line. Looking forward, the S&P 500 has done a great job staying above its Q4 2011 high (~1292) and now has its sights set on its 2011, high near 1370. In addition, the bulls remain in control as long as the benchmark S&P 500 trades above 1292 and then its 200 DMA line.
Monday-Wednesday’s Action: Stocks Consolidate Recent Gains:
Before Monday’s open, stocks in Europe fell after Greece missed another deadline to receive a second bailout package from the EU and the IMF. Greek officials were supposed to reply by noon in Brussels to the European Union on new and difficult terms for a second bailout package. Stocks were quiet on Tuesday as Ben Bernanke testified on Capital Hill and the world awaited a resolution to the second bailout for Greece. U.S. Federal Reserve Chairman Ben Bernanke reiterated his recent stance to support the global economy and help stem Europe’s financial crisis from adversely affecting the U.S. economy. Bernanke remained cautious about the prospects for the U.S. economy. Stocks were quiet again on Wednesday as the world continued to wait for a solution to the second Greek bailout and the latest round of earnings were released. Economic data was light, the Mortgage Bankers Association said weekly mortgage applications rose sharply last week which was another sign of a bottom in the ailing housing market. As we have said since the middle of 2011, housing stocks have appeared to have traced out a near term bottom and they usually move 3-9 months before the housing market moves. Therefore, if they continue to rally we have to believe that a bottom is in place for the ailing housing market. Earnings data was mixed but the market’s reaction so far has been positive.
Thursday & Friday’s Action: Greece Agrees To Bailout Terms, ECB and BOE Meetings Barely Move Markets
Investors digested a lot of earnings and economic data on Thursday. The big news was that Greece agreed to to the demanding terms of its second bailout package from the EU and the IMF. Separately, the Bank of England (BOE) and the European Central Bank (ECB) both concluded their latest meetings. The BOE injected (printed more money) $79.3 billion to boost their struggling economy. Meanwhile, the ECB held rates steady at 1% and made it clear that they are willing to take additional (and aggressive) steps to save the Euro, if needed. Finally, the Labor Department said jobless claims fell by 15,000 to a seasonally adjusted 358,000. Stocks fell on Friday after the trade balance in the U.S. topped estimates and grew to $48.8B in December. Elsewhere, the latest read on consumer confidence missed estimates which is not ideal for the broader economy.
Market Outlook- New Rally Confirmed
Nearly all risk assets are extended by any normal measure and are due for a pullback to consolidate their recent gains. The key is to ascertain the health of the pullback to see if it is a short pause in a new uptrend or the beginning of a new downtrend. Risk assets (stocks, FX, and commodities) have been acting better since the latter half of December. Now that the major U.S. averages scored a proper follow-through day the path of least resistance is higher. Looking forward, one can err on the long side as long as the benchmark S&P 500 remains above support (1292). Leadership is beginning to improve which is another healthy sign. Now that the 200 DMA line was taken out it will be important to see how long the market can stay above this important level. If you are looking for specific help navigating this market, feel free to contact us for more information. That’s what we are here for!